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tv   [untitled]    August 5, 2010 1:30am-2:00am PST

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years. that aim is to be able to assess the entire 952 miles of sewers. it will be ongoing. we will have a tv truck logging and review with the tapes and updating our condition assessment. we can program which miles we are doing each year. does that adequately cover your point? the first number is bigger because it is individual spots that have failed in the collection system. >> how many years is the rotation of an inspection? >> the manager of collection systems is here. he is the best to answer.
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>> the initial pass through of the system will take six years. the reason you do not see a corresponding increase in the repair and replacement it is we are sending inspection teams to our estimated worst locations, based on the estimates we have seen over the past 16 years. we are going there to see if our conclusions are correct. those will be taken care of first. the object is to use this new accord and we are getting and then to come up with a 10-year plan. once the sewers are replaced, they do not require a six-year cycle. it is more likely that you will do a 10-year cycle.
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perhaps more frequent with others. >> getting back to your charts on 56, 57 -- those dollars are animal dollars, they are not inflated, not present value? >> currently, right now, $1 million on mile.
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>> so when you look at [no audio] k annual cost come if we were planning on a 15-year cycle. then on the next page you show the 15 years. after you break the hump, you step down to an 8-year. has that been subject either to present value analysis or the lowest life cycle costs that was in the asset management section of the report? >> this takes into account the risk assessment, and that is how
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we ended up with these categories. 160 miles that needs to be replaced to then have been in a manageable level of risk. you have a system in some places that is older, getting close to 110, but we are getting the highest risk first. you have these in variable that are changing at the same time. i did not throw in cost escalation. we had looked previously at other charts which had the total cost. you have different lengths of time and you are escalating in a flat line. this analysis has built in everything. same with that asset management approach for selection.
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it is the $3 million a mile. >> if you could get this information to todd, and say, given a financing structure, what we want rates to look out over time, the answer might be different. >> that will be the next section. >> these match what we discussed in the 10-year budget program. how long can we wait to catch up? >> the thing that i have been wrestling with is we did have discussions as part of the budget process. there was a recommendation that
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we do with the 15-year cycle. so if that is answered, what is the question, what are we trying to do here? if this information is given to todd, and the direction is how do we finance it, that will give you one answer. here is a risk profile, here is what it takes to do with that risk over time. here is how it will play out. you tell us the financially most important thing to do. that may get a different enter. if we say we want to have the rates change in some other way, basically we want to have blocks of actions that are tied to something that people can understand, then we could
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conceivably come up with a third enter. a --nswer. >> the discussion we will be having about rates, if you put this thing together, it feels like to much. there are ways to decrease in the ssip or do less per year. >> i really want to move on but i want to make another point. we built all of those factors into the chart. all of those variables are changing, risk, variable assessment. todd will talk about how this profile plays out when we get to the rate. all the projects that we have been discussing over the past two workshops have been laid
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out in a scandal over time. we have biosolids facilities beginning right away. treatment scattered over 30 years. treasure island is at the midpoint of this decade. low impact design run the entire 30 years. that is an annual program would also has capital projects for creek daylighting. downspouts program would also be an annually funded project. we have channel tunnels. what i wanted to share you in the next slide is the location of those projects. this is a nice graphic that looks at what is what is in the ssip. we have a localized flood protection project that would handle storm water flows within
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those neighborhoods. be able to capture and manage the storm water. what is not in the ssip. we do not have a southeast outfall replacement for upsizing. we do not have the diversion tunnel that we have discussed previously to bring flows east to west. we cannot anticipate the regulatory requirements in the future, but the list goes over everything that we have been discussing. so with that, todd. >> first of all, good morning. the general manager. i had the fun task with my staff
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-- i want to recognize our administrator and others -- who have put this into the household budget perspective. many of the numbers will be impacted based on the level of goals you want to see achieved. when we have taken here is everything that karen explained as far as the sewer system improvement plan, the ramping up of the collection system to a 15-year target, and then put that into how that would affect the average waste water bill. the chart before you is the total server system program. -- sewer system program.
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you see that the budgetary authorizations would have to be on track to tee up as part of our 10-year plan, would grow from under $100 million today, to afford to of $650 million by 2016. that would be as the budgetary authorizations for the planned cost digesters would be needed. additionally, we would see a spike in 2021 for later portions of the source improvement program coming online. that is a fairly large program but i want to put that in the context of what we're doing now.
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we have taken much of this in anticipation as we look at the 10-year budget plan. the rest of the plan included two additional bars. the first one is the green bar, which represents the cash-funded programs which you have already built into your rates. that cash-funded program is a program that is of the $40 million a year over the next 10 years, growing at a pace of 30% every year. we also need additional ramping up for r&r. there is not enough cash to pay for that. you will see a red bar stocked on top, what are repair and
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replacement needs, that are on top of bond fund it. we have a lot of bond and state revolving loan that will be paid off over the next 10, 15 years. that will free up debt capacities and that can be used for new system improvements. lastly, the same blue bars, we stacked on top of that the need for the sewer improvement program. the cash-funded agreement portion, every year we are depreciating about $40 million of capital assets. on average, if you are cash funding what we are depreciating, we are neck-and- neck. depending on the goal, the most critical needs, at least you can see that over the next several
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years we are matching the annual depreciation with annual cash spending. the cash program over the next 10 years is projected to be able to fund at about $430 million. a significant number but much smaller than the $6 billion program that karen described earlier. what this means to the average water and waste water bill, if i could draw your attention to the bottom part of the screen, the dark blue portion. that is the average water bill. we ramped those rates up to pay for the upcoming cost. the lighter blue portion is if
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we stacked on top of the residential, business bill, the sewer program. $83 would be the total combined bill for water and waste water. if that were to grow through 2030, the projected completion time of the ssip, you would see a projected average, total sales, would grow from $83 to write around $53. that seems like a lot of money. i would like to take a moment to see what inflation looks like. the red line that we have marked, if we do nothing, and the world on average has a 3% inflation, which has been the post-war average, every cost will double.
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so between now and and 2024, and everything will cost twice as much. and the other metric used, in terms of capital planning, if we do nothing, construction cost inflation tend to significantly outpaced regular inflation. we are assuming that will be 5% of construction costs. those are always two key inflation numbers that we keep in mind as we do this production. the total bill, as far as what it means on an annual rate change -- and as mr. harrington mentioned earlier, we are able to fit a great deal more than
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one might think into the household pocketbooks possibly because of paying off old debt, and that will help clear up some capacity for the sewer system. so if we have 3% inflation and a pathetically the commission were to develop capital plants that fit into a 3% inflation scenario, we would be following those annual rate increases uc there. after current rates are adopted, we would only be setting rates commensurate with 3%. that could achieve a lot, but not everything needed for the ssip. in order to do the sewer system improvement program, we would be looking at likely in borrowing
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rates because we have to fund it, between 4% and 5%. when we reviewed the water system with the commission, we have always used that long-term borrowing costs. we have been doing incredibly well. we just sold some water bonds on thursday. we got 3.1%. however, we are more conservative in this model. we know our record low borrowing level that we are getting now will not likely last forever. so we are doing a more realistic 5% borrowing rate. what that shows is, this is possible, but we've with need -- we would need five years of
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rate increases, and then we could rent them down further after your time, your 15. the rate changes, annual changes would be much smaller than what we thought on the water system improvement program. this is a function of different things. the sewer bill is two-thirds of the total. water was only one parent. also, we had some debt that was paid off. the other illustration we are showing here, if we are lucky enough to borrow at 4%, that means we still need two years of 10% rate increases. but then we can significantly ramp down near 6.5% for the next several years after that. that will help to put it in
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perspective, as far as the average rate change. these percentages will be much less than the 15% rate changes that we have seen in the water system program. >> remind me again, the first four years on that are higher than the 3%. why is that? >> the prior year, we did a 5% rate adoption. we assume that we would continue that. whether the scenario is long- term inflation or a 5% borrowing cost, we have assumed we would live within the rate increases, even with lower consumption and treatment. >> you have had a dark blue for the water rate.
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we have talked about the next round of water system improvements that were not included in the ssip. is that subject to later discussion? >> this is what ever is in the capital plan. not a large water improvement system program. this is a cash-funded program waste water funding is only 5%. to look at
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utility bills. the first line at the bottom looks at the average water bill and how that fits into average household income. figures we read say anything below 2% is affordable, if your water bill is below that, if your waste water bill is below 2.5%. it is deemed affordable. so on average, our water bills are affordable compared to the needy in el -- income. our debt, and we have issued six straight debts so once you lock in that rate, you do not much change.
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the waste water source system improvement program is the light blue line. with the projected need of services to improvements needed, we would rent up from 1% to 1.5%. then we would lock that in to a fixed rate. household incomes are soon to continue to grow at that 3% global inflation. this is how household income would change over time. in today's dollars, household income is $70,000.
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household income is when we look at all the income coming into a household. if two people live in a home, it is their combined income. if someone has unemployment insurance, that is included. so this is a number from the federal census bureau. you see over time with 3%, it would be projected to grow significantly. again, everything would double in 23 years. we have reflected on the rate change slide a moment ago. while we have been able to project that we would be able to keep the rate changes to 10% or lower, there would be some things you would be able to do as policy-makers, and during
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that time, to help insure if your will was to keep it in the single digits, keep it lower, you could ask us to look at these options. these options are levers that we control, some that we do not. just to put that in perspective, in order to go from maintain -- and% increase down to a 9% increase, you could temporarily shave off the cash-funded program by $4 million. if you look by 2017, just going from a cash-funded program from $43 million a year down to $39 million. the other way that you could go is you could ask us with operating budgets as well to
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say, hold the budget flat. we have held the operating budget last because of our extreme success, water conservation efforts and lower usage. that would be another alternative. all the models, we have always assumed, grow at that inflation rate. so we are not going to do than one year and take a holiday on the increase. the other things we do not control would be the marketplace. while we have been successful in our borrowing as of late, that is a record in our generation's time. the market, when we issue debt,
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maybe it decides that we are good again and the cycle will repeat itself. the other thing we do not have control over is consumption growth. because folks have done a poor job of conservation, at some point, we are only using 51 gallons per household per day. that is incredible. one-third of what the rest of the state uses. we cannot go to zero, but we know we are being efficient users. if consumption does begin to grow, because population grows about half a percentage every year. if a consumption starts to grow with population growth, that would be about a half percent a year.
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so we would have to come back to you every year, as we do now, to give you an update on what that would mean for the average consumer. so with that, i am happy to answer any questions. >> some other levels, at least in theory, that we can control, that would have an impact on the rate of service -- and even with stretching out the implementation plan, that could change the rate and structure as well. >> what is before you today, which karen showed, she made the assumption that we wanted to
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minimize the rate shock as much as possible. not asking for the whole multimillion dollar appropriation of the front but phased over a couple of years. you could say, start one year later, pass one through 3 and break give up into five tasks. that is something else that we could do. >> if the levers we do not control do not manifest, we would be able to use the money that we can control, just to stay in single digits? >> we would have some flexibility because we are cash- funding $40 million. that does give you a lot of flexibility. however, we would see


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